The bottom 60% of income earners in Mississippi would pay more in taxes under legislation the House passed, while the top 40% would pay less, according to analysis conducted by a Washington, DC-based think tank.
A person in the top 1% with a median income of $ 924,000 would pay $ 28,610 less in combined state taxes, under extensive legislation by spokesman Philip Gunn, R-Clinton, while the next 4% of state income recipients would save about $ 3,760 in taxes would be average. Based on analysis by the Institute of Taxes and Economic Policy, those earning $ 49,100 or more would pay less tax, while those earning less would pay more state taxes than they are currently paying.
A person making $ 11,000 a year would pay $ 220 more in taxes, while a person making $ 23,000 would pay an additional $ 270 in taxes based on the analysis.
The analysis related to the main components of the bill, which:
- Let the state income tax expire.
- Reduce the state tax on groceries from 7% to 3.5%.
- Increase the tax on cigarettes by 50 cents per pack.
- Increase sales tax on other retail items by 2.5 cents for every dollar spent. This would increase sales tax to 9.5% on most retail items. Numerous large ticket items such as farm equipment vehicles, manufacturing equipment, and aircraft that are taxed at lower rates would also be increased by 2.5 cents per dollar spent.
“We know for a fact that the combined effects of the tax plan will make the tax system in Mississippi more unequal,” said Kyra Roby, a policy analyst for One Voice, which advocates for poor and working families in Mississippi.
Proponents of the massive tax restructuring bill have stated that when the sales tax increase begins, the proposal will be revenue neutral, cut food tax from 7% to 4.5%, and cut income tax to nearly 60% on wage earners. Food tax will be reduced to 3.5% over the next five years and income tax will expire in just 10 years. The bill includes a trigger that would postpone an income tax cut any year that it does not meet established growth standards.
Gunn and House Ways and Means Chairman Trey Lamar, R-Senatobia, said the bill would fuel the growth of the state while expanding the tax base by taxing consumption – sales and consumption taxes instead of taxing income. Gunn has long made it his goal to move the state from taxing income to taxing consumption.
The effects of the law have been the subject of much debate since it was unveiled on February 22nd and passed on the floor of the house the following day. It is now pending in the Senate. The study by the Institute for Taxes and Economic Policy – known as a progressive think tank that offers analysis of taxes at the federal, state and local levels – is the first publicly published analysis of how the bill would affect socio-economic groups of Mississippians . Roby said the institute used its tax modeling tool to arrive at its conclusion.
Both Governor Tate Reeves and Governor Delbert Hosemann raised concerns about the tax increase – mainly sales taxes and excise duties – on certain “large ticket items” such as aircraft and agricultural equipment. Hosemann, Chairman of the Senate, has asked the state economist for a study on the effects of the legislation. This study is pending and is expected to be completed before the Senate decides whether to take up the proposal. Other conservative groups like Empower Mississippi have generally stated that the bill would have a positive impact on the state.
A study published Monday by Joshua Hendrickson and Ronald Mau, business professors at the University of Mississippi, found that the bill would increase the state’s gross domestic product by $ 371 million annually by making the tax structure more efficient. In general, the study found that income tax that would be eliminated by the house plan leads to inefficiencies in the economy, while an excise tax like sales tax that would be increased by the house plan does the opposite.
Gunn said the Ole Miss study “further demonstrates” that the plan “is based on sound tax policies”. The abolition of income tax will reward labor, savings and investment, and increase the size of our state economy while preserving the income we need to meet priorities. Mississippians now need the benefits of this tax break. I encourage Lt. Governor Hosemann and the Senate to work with us to pass this tax reform at this meeting. “
The 7% sales tax is already the state’s largest single source of income. One Voice and others argue that sales tax creates a higher tax burden for poor people as they are forced to spend a greater proportion of their income on basic necessities. Gunn said his proposal to reduce food tax to offset the impact on the poor of the state, increase general sales tax by 2.5 cents for every dollar spent. But Roby said the bill would still add a bigger tax burden for low-income earners.
Though the state’s personal income rate is one of the lowest in the nation, analysis by One Voice and the Institute of Taxes and Economic Policy found that it is still the only state tax where wealthy Mississippians pay a greater proportion of their income than poor people Mississippians.
Overall, “under the current state tax structure, the lower and middle people share a greater burden than the wealthiest in the state,” Roby said.
For example, those who earn less than $ 16,100 pay 10.2% of their income on state and local taxes, largely due to Mississippi’s high sales tax rate, which includes the 7% food tax. Those in the middle, who earn between $ 43,000 and $ 77,500, pay 9.2% of their income for state and local taxes. Those who earn more than $ 162,200,800 pay 6.5% of their income in state and local taxes.
The study by the Institute for Taxes and Economic Policy said the House’s bill would place an even greater burden on the working poor and middle class in Mississippi.
“We believe the House proposal will make life harder for children, working families and seniors in Mississippi,” said Brandon Jones, political director at the Southern Poverty Law Center.
Wesley Tharpe, assistant director of government policy research at the Center for Budget and Policy Priorities, said, “The food tax cut alone would be good policy and good for working and low-income families, but the savings would likely not be enough to offset them the increase due to such a significant increase in sales tax. “
On the other hand, the analysis by the professors of Ole Miss concluded: “This proposed tax reform aims to reduce inefficiencies in the state’s tax system and to create a more competitive tax environment. Basically, a consumption tax system has some desirable features when compared to an income tax system. “
Ole Miss’ study found, contrary to the beliefs of Roby at One Voice and Jones of the Southern Poverty Law Center, that the proposal will be near revenue neutral and that they believe their findings on how the changes could improve the overall economy , “Are conservative.”
Ole Miss’ professors concluded, “Indeed, we find that the proposal is nearly revenue neutral. Eliminating the inefficiencies in individual income tax would increase real GDP by $ 371 million a year. “